March 18 – Stock futures were modestly weaker overnight, and they remained that way despite better-than-expected housing data released this morning. Wall Street continues to fret about Trump’s tariff wars, while also waiting to hear from the Federal Reserve tomorrow. President Trump is also expected to have a call with Russian President Putin later today that could yield some insight into the possibility of a ceasefire in Ukraine, even as tensions mount again in the Middle East. The VIX is trading near 21 this morning, while the dollar index is trading near 103.5. Yields on 10-year Treasuries are trading near 4.32%, while yields on 2-year Treasuries are trading near 4.06%. Crude oil prices are roughly 1% higher, while the grain and oilseed markets traded mixed to higher overnight as well.
New housing starts rose to an annualized rate of 1.501 million units in February, up from 1.350 million the previous month, and exceeding analyst expectations of 1.383 million units. However, today’s number is still 2.9% below the pace seen one year ago. Permits issued for future starts came in at an annualized rate of 1.456 million in February, down slightly from 1.473 million in January, but slightly above analyst expectations of 1.450 million. Housing completions in February came in at a seasonally adjusted annual rate of 1.592 million units, down 4% from January and 6.2% below year ago levels. Single-family housing completions in February came in at an annualized rate of 1.066 million, which is up 7.1% from January. The bottom line is that the housing sector remains in a slump, but we did see some improvement in February in the single-family housing market.
Could we see an end to the war in Ukraine? We may learn more about that later today following a scheduled phone call between President Trump and President Putin. Peace in Ukraine would ease some of the tensions in the commodity world, possibly resulting in eased sanctions on Russian crude oil. However, failure to get peace could result in even tighter sanctions on that crude oil at a time when sanctions are also being ramped up against Iran and Venezuela. Trump wants an agreement, and he will maximize pressure on Putin to get one. The flow of grain from the Black Sea has largely remained steady. An end to the conflict would allow shippers to sleep better at night, and likely relax freight costs, but it isn’t expected to have a big impact on the overall volume of grain flowing out of either Russia or Ukraine. In fact, the flow of wheat coming out of Russia has slowed dramatically due to tightening domestic supplies, and that may continue into the next marketing year as well if the spring rains fail to come. A ceasefire could result in a restrengthening of the Russian ruble, making Russia’s wheat less competitive. That could result in it needing to lower prices if the rains fall and export volumes rebound in the months ahead.
Tensions are rising again in the Middle East. President Trump initiated retaliatory strikes on Houthi Rebels for their continued hits on ships in the Red Sea region. Trump then stated that he would hold Iran directly responsible for future Houthi strikes on ships, raising the risks that we could end up in a direct military conflict with Iran that could then become more of a regional conflict. Iran has previously threatened to strike other crude oil related targets in the Middle East if it became a target itself, risking the broader regional conflict. Trump was successful in stopping strikes by Iran-backed groups in Trump 1.0, but it is yet to be seen whether that will be the case in Trump 2.0. The Houthi Rebels state that they now consider themselves in a war directly with the United States, even though there are reports that Iran has asked them to back down. Yet, it is widely believed that Iran provides the funding for the Houthis, so their continued strikes on ships and other U.S. targets are believed to remain a reflection of actual Iranian policy. The stakes are obviously high. A broader war would put even greater risk on the energy markets, as well as shipments in the region, while peace would be expected to have the opposite impact. One of Trump’s objectives in the process was to revive the Abraham Accord that was negotiated in Trump 1.0. The Abraham Accord sought to establish a peaceful relationship between Israel and its Arab neighbors while isolating Iran. Trump hopes to now re-establish the agreement to increase pressure on Iran, hoping to bring a more lasting peace to the region.
More strong winds of 45 – 60 miles per hour are expected today into tomorrow for the Central and Southern Plains winter wheat belt, adding another level of stress to the drought plagued crop. State crop condition reports show that the crop is currently in decent condition overall, despite ongoing dryness and the high winds, but those ratings are slipping as temperatures trend warmer and winds pull more moisture from the soil. U.S. wheat still needs to remain competitive on the global market, but risks to the overall Northern Hemisphere crop are trending higher, providing underlying support for the cash market, which is being noticed by traders. That then tends to provide modest support for corn prices as well. That said, tariff fears continue to hang over commodity markets, limiting the extent to which traders are willing to build long positions for now.
